Bank of England Faces Challenge in Levelling Growth in Housing Market

Strategic Insights -

The Bank of England's Monetary Policy Committee (MPC) is facing a difficult decision as it considers its next move on interest rates, with the housing market showing signs of strength and consumer debt continuing to rise. Despite the rise in interest rates, economists believe that the MPC is more concerned about the housing market and high street than it is letting on, with some arguing that the current tactic of verbal warnings and incremental rate increases is not having the desired effect. The MPC's objective is to chasten consumers without scaring them, but the strategy appears to be failing, with the average monthly mortgage repayment increasing by only £30.

Key Takeaways:

  • Almost all 30 City economists polled by Bloomberg expect another rate rise soon to combat rising consumer debt and a strengthening housing market.
  • The MPC is concerned about the housing market and high street, despite downplaying its significance in previous meetings.
  • The latest data shows a rapidly strengthening economy, with growth higher than previously thought at 2.3% last year.
  • Nationwide reported a strong rise in house prices last month, with Halifax expected to publish its figures this morning.
  • A CBI survey showed a slight dip in sales in February, but growth remained above average, and retailers expect sales to pick up again this month.
  • The half-point rise in interest rates has increased the average monthly mortgage repayment by £30, a relatively small amount.
  • Michael Saunders of Citigroup believes that higher interest rates are inevitable, regardless of whether the MPC prioritizes growth or consumer borrowing.

Statistics:

  • 2.3%: The revised growth rate for last year, higher than previously thought.
  • £30: The increase in average monthly mortgage repayment due to the half-point rise in interest rates.
  • 30: The number of City economists polled by Bloomberg who expect another rate rise soon.
  • 4%: The current interest rate, which is expected to remain at this level tomorrow by all 30 economists polled.

Sources:

  • Bloomberg: Poll of 30 City economists.
  • Fathom: Economic consultancy, quotes Danny Gabay.
  • Bank of England: Minutes of Monetary Policy Committee meetings.
  • Nationwide: House price reports.
  • Halifax: House price reports.
  • CBI: Retail sales survey.
  • Citigroup: Quotes Michael Saunders.